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Taptica Int. Ltd (TAP)

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Monday 20 March, 2017

Taptica Int. Ltd

Full Year Results

RNS Number : 8798Z
Taptica International Ltd
20 March 2017
 

20 March 2017

 

Taptica International Ltd

("Taptica" or the "Company")

 

 

Full Year 2016 Results

 

Taptica (AIM: TAP), a global end-to-end mobile advertising platform for advertising agencies and brandsannounces its full year results for the twelve months ended 31 December 2016.

 

 

Positioned for sustained organic and inorganic expansion

 

·    Strong performance from first full-year period as mobile-focused business

·    Significant increase in revenue and improvement in gross margin resulting in high level of cash generation

·    Broadened global footprint with establishment of international offices and partnerships

·    Mobile app advertiser customer revenue retention rate of 193% and addition of new customers

 

Financial Highlights

 

 

Highly cash generative with strong growth in revenue and significant improvement in margin

 

·    Revenues increased by 66% to $125.9 million (2015: $75.8 million)

·    Gross profit more than doubled to $46.0 million (2015: $21.1 million), with improvement in gross margin to 36.5% (2015: 27.8%)

·    Adjusted EBITDA* of $25.7 million (2015: $7.4 million)

·    Net cash inflow from operating activities of $20.3 million (2015: $6.2 million)

·    Final dividend for 2016 of $0.0432 per share, making a total dividend for the year of $0.1011 (total dividend for 2015: $0.00784)

·    Cash and bank deposits as at 31 December 2016 were $21.5 million (30 June 2016: $9.5 million) after making a total cash payment of $16.5 million for three main items:  full consideration of AreaOne's acquisition ($7.0 million); share buyback ($5.5 million); and dividend payment ($4.0 million)

*Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortisation and share-based payment expenses.

 

Operational Highlights

 

 

Technology improvement and increasing brand recognition delivering better campaigns for larger client base

 

·    Mobile business accounted for 86% of revenues (2015: 61%) as Company continued to gain traction with existing household-name clients and added new customers

·    US continued to be the largest geography by revenue generation, but also received first meaningful contribution from Asia-Pacific region

·    Increased its international presence with the establishment of an office in Seoul, South Korea and a partnership with Adways Korea; and, post period end, a partnership with Adinnovation in Japan and an office in London, UK

 

Hagai Tal, Chief Executive Officer, stated: "This year we have significantly increased revenue, improved margins and remained highly cash generative. We increased the number of advertisers on mobile to over 600, which included household names such as Amazon, Disney, Expedia. Cartoon Network and others. We have also established strong foundations in the Asia-Pacific region, which is a key growth market.

 

"Taptica entered 2017 at a run rate significantly higher than at the equivalent period last year as it continues to benefit from the investment being made into mobile advertising by corporates and advertising agencies. The strength of our offer lies in our proprietary platform and ability to collect accurate data which enables us to deliver efficient and effective campaigns, which we will continue to do for all our clients. With consumers continuing to increase their use of apps and accessing the internet on their mobile most of the time, we anticipate existing clients growing their ad spend with Taptica as well as new advertisers entering this market. We also expect to receive increasing demand from the Asia-Pacific region with demand from US and Europe set to continue. As a result, the Board remains confident of delivering strong year-on-year revenue growth in the year ahead."

 

 

Enquiries

 

Taptica

 

Hagai Tal, Chief Executive Officer

+972 3 545 3900

 

 

Investec Bank plc

 

Dominic Emery, Henry Reast, Junya Iwamoto

+44 207 597 4000

 

 

Luther Pendragon

 

Harry Chathli, Claire Norbury

+44 207 618 9100

 

Analyst presentation

Hagai Tal, Chief Executive Officer, and Yaniv Carmi, Chief Financial Officer, will be holding a presentation to analysts at 9.30am GMT today at the office of Luther Pendragon, 48 Gracechurch Street, London, EC3V 0EJ.

 

 

About Taptica

 

Taptica is a global end-to-end mobile advertising platform that helps the world's top brands reach their most valuable users with the widest range of traffic sources available today, including social. Its proprietary technology leverages big data and, combined with state-of-the-art machine learning, enables quality media targeting at scale. Taptica creates a single arena in which brands can scale and engage more relevantly with mobile audiences, staying ahead of the competition. It works with more than 600 advertisers including Amazon, Disney, Facebook, Twitter, OpenTable, Expedia, Lyft and Zynga. Taptica is headquartered in Israel with offices in San Francisco, New York, Beijing, Seoul and London. Taptica is traded on the London Stock Exchange (AIM: TAP). 

Operational Review  

 

This has been the first full twelve-month period following the completion of Taptica's transition to a mobile-focused business. During the period, Taptica continued to build on these strong foundations increasing revenue by 66% to $125.9 million compared with $75.8 million for 2015, with the mobile business accounting for 86% of overall sales compared with 61% in 2015. Significantly, this included growth amongst existing clients as well as the addition of new clients.  

 

In addition, due to the sustained development of the Company's technology as well as the greater proportion of revenue generated by Tier 1 clients, gross margin improved to 36.5% (2015: 27.8%) with gross profit more than doubling to $46.0 million (2015: $21.1 million). As a result, Taptica remained highly cash generative with net cash inflow from operations increasing to $20.3 million from $6.2 million in the prior year.

 

Taptica entered 2016 as a mobile-focused business with a platform that optimises marketing campaigns for advertisers across mobile and social media channels based on its ability to leverage data, which is key to enabling successful mobile targeting for the Company's clients. During the period, the Company benefited from these strong foundations and its early transition to being mobile focused ahead of many of its competitors. In addition, Taptica continued to enhance its offering through R&D into database and machine learning to further enhance its ability to leverage data, as well as through the continual development of user data to enable ever-more accurate user targeting.

 

The Company further strengthened its foundations with the strategic decision, executed during the period, to focus its resources on developing its demand-side platform ("DSP"). As a result of the strengthening of its mobile capabilities and focus on its DSP, the Company's offering to Tier 1 advertisers has been significantly enhanced. This enabled sustained growth with its existing household-name clients and increasing new customer demand.

 

Mobile app customer revenue retention rate for 2016 over 2015 was 193%.

 

International expansion

 

During the year, Taptica completed the integration of its office in China, acquired with AreaOne, and succeeded in growing its business in the region with clients such as Locojoy, a major Chinese mobile game developer, which appointed Taptica to increase downloads of its latest app, the role-playing game Chrono Heroes. This followed Taptica's successful campaign on a previous Locojoy game.

 

Taptica also increased its presence in the Asia-Pacific region with the establishment of an office in Seoul, South Korea to advance its sales initiatives in this key growth market, and subsequently entered into a partnership with Adways Korea ("Adways"), a leader in mobile marketing leveraging its strong Asia network and part of the TSE-listed Adways Inc. group (TSE: 2489). The aim of the partnership is to facilitate global mobile app developers and other clients of Taptica to run effective and efficient mobile marketing campaigns in Asia through access to Adways' extensive network and coverage, combined with the Company's ever-growing database. The strategic partnership will initially target the mobile games industry.

 

As a result, during the period the Company earned its first meaningful revenues from the Asia-Pacific region, the largest and fastest growing digital retail market in the world, with approximately 10% of mobile revenues being generated in this geography.

 

Post period, Taptica entered into a partnership with Adinnovation Inc. ("Adinnovation"), a specialised marketing company headquartered in Japan providing comprehensive services for monetisation of apps. Under the terms of the agreement, Taptica and Adinnovation will target the mobile games industry, which is one of the key areas of focus for Adinnovation. Taptica expects the partnership to accelerate the Company's brand awareness in Japan and help it to lead the local market expansion.

 

In addition, Taptica opened, post period, an office in the UK - becoming the fifth international market to have a Taptica presence after the US, China, South Korea and Japan. In the UK, Taptica will work with advertising agencies to bring brands into the digital and mobile world, with a primary focus on the entertainment, e-commerce, retail, digital banking, travel and gaming sectors. The Company intends to leverage its relationship with two of Europe's largest advertising agencies with headquarters in UK to penetrate these sectors. Opening an office in UK will enable Taptica to better serve its existing client base in the UK and Europe as well as to target new customers and further expand its addressable market.

 

Financial Review

 

Revenues for the twelve months ended 31 December 2016 increased by 66% to $125.9 million compared with $75.8 million for 2015.

 

Gross profit more than doubled to $46.0 million (2015: $21.1 million) representing the growth in overall revenue. Cost of sales, which consists primarily of traffic acquisition costs that are directly attributable to revenue generated by the Company and based on the revenue share arrangements with audience and content partners, decreased as a proportion of revenue compared with the prior year due to increased technology efficiency gains resulting from improved use of big data collected thereby significantly improving the gross margins. Consequently, total gross margin was 36.5% (2015: 27.8%).

 

Operating costs increased primarily due to greater sales & marketing expenses as well as R&D expenses and the contribution from AreaOne. Sales & marketing costs increased to $14.2 million (2015: $8.6 million) as investments were made to enhance brand recognition, expand the global customer base and invest in the expansion of global offices. R&D expenses were $6.1 million (2015: $4.1 million) due to investment in the technology platform enhancements and data base capabilities. General & administrative expenses were broadly similar to the prior year. Operating costs for 2016 include the AreaOne costs following the acquisition in September 2015 (compared to a partial year contribution for 2015).

 

Adjusted EBITDA for 2016 was $25.7 million compared with $7.4 million for 2015, which is comprised as follows:

 

 

2016

$'m

2015

$'m

Operating profit

19.7

2.9

Depreciation & Amortisation

5.1

3.5

Share-based payments

0.5

0.6

Acquisition-related costs

0.4

0.4

Adjusted EBITDA

25.7

7.4

 

The Company continued to be cash generative with net cash provided by operating activities of $20.3 million (2015: $6.2 million).

 

As at 31 December 2016, cash and bank deposits were $21.5 million (30 June 2016: $9.5 million; 31 December 2015: $18.7 million) after making a total cash payment of $16.5 million for three main items:  full consideration of AreaOne's acquisition ($7.0 million); share buyback ($5.5 million); and dividend payments ($4 million).

 

Dividend

 

The Company maintains its policy of distributing 25% of net profits in dividend payments. As such, the Board has resolved to declare a final dividend of $0.0432 per share, with an ex dividend date of 20 April 2017, a record date of 21 April 2017 and a payment date of 20 June 2017. This equates to a total dividend for the year, including the Special Dividend payment following the interim results, of $0.1011 per share (total dividend for 2015: $0.00784).

 

Outlook

 

Taptica entered 2017 at a run rate significantly higher than at the equivalent period last year as it continues to benefit from the investment being made into mobile advertising by corporates and advertising agencies. The strength of its offer lies in the Company's proprietary platform and ability to collect accurate data which enables the delivery of efficient and effective campaigns, which the Company will continue to do for all of its clients. With consumers continuing to increase the use of apps and accessing the internet on their mobile most of the time, the Company anticipates existing clients growing their ad spend with Taptica as well as new advertisers entering this market. The Company also expects to receive increasing demand from the Asia-Pacific region with demand from US and Europe set to continue. As a result, the Board remains confident of delivering strong year-on-year revenue growth ahead in the year ahead.

 

Consolidated Statements of Financial Position as at 31 December

 

 

 

2016

2015

 

Note

USD thousands

USD thousands

 

Assets

 

 

   

Cash and cash equivalents

9

 21,471 

 10,173 

Bank deposits

 

 - 

 8,516 

Trade receivables, net

7

 27,443 

 19,168 

Other receivables

7

 1,890 

 1,558 

Total current assets

 

 50,804 

 39,415 

 

 

 

   

Fixed assets, net

5

 433 

 514 

Intangible assets, net

6

 33,046 

* 36,620 

Deferred tax assets

4

 301 

 180 

Total non-current assets

 

 33,780 

 37,314 

 

 

 

   

Total assets

 

 84,584 

 76,729 

 

 

 

   

 

 

 

   

Liabilities

 

 

   

Trade payables

8

 22,501 

 20,366 

Other payables

8

 9,443 

* 5,949 

Total current liabilities

 

 31,944 

 26,315 

 

 

 

   

Employee benefits

 

 176 

 182 

Contingent consideration commitment

16

 - 

* 2,277 

Deferred tax liabilities

4

 1,740 

2,676 

Total non-current liabilities

 

 1,916 

 5,135 

 

 

 

   

Total liabilities

 

 33,860 

 31,450 

 

 

 

   

Equity

11

 

   

Share capital

 

 175 

 190 

Share premium

 

 29,759 

 35,566 

Capital reserves

 

 1,238 

 2,450 

Retained earnings

 

 19,552 

 7,073 

 

 

 

   

Total equity

 

 50,724 

 45,279 

 

 

 

   

Total liabilities and equity

 

 84,584 

 76,729 

 

 

 

*   Restated - see Note 16B

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Consolidated Statements of Comprehensive Income for the Year Ended 31 December

 

 

 

 

2016

2015

 

Note

USD thousands

USD thousands

 

Revenues

 

 125,861 

 75,829 

Cost of sales

 

(79,880)

(54,716)

Gross profit

 

 45,981 

 21,113 

 

 

 

 

Research and development expenses

 

 6,127 

 4,092 

Selling and marketing expenses

 

 14,202 

 8,634 

General and administrative expenses

10

 5,919 

 5,464 

 

 

 26,248 

 18,190 

 

 

 

 

Profit from operations

 

 19,733 

 2,923 

 

 

 

 and business combination related expenses*

 

 22,910 

 5,688 

 

 

 

 

Financing income

 

 355 

 75 

Financing expenses

 

(504)

(207)

Financing expenses, net

 

(149)

(132)

 

 

 

 

Profit before taxes on income

 

 19,584 

 2,791 

 

 

 

 

Taxes on income

4

(3,115)

(642)

 

 

 

 

Profit for the year

 

 16,469 

 2,149 

Profit for the year before amortization of purchased intangibles and

 

 

 

 business combination related expenses (net of tax)**

 

 19,042 

 4,952 

 

 

 

 

Total comprehensive income for the year

 

 16,469 

 2,149 

 

 

 

 

Earnings per share

 

 

 

Basic earnings per share (in USD)

12

 0.2627 

 0.033 

Diluted earnings per share (in USD)

12

 0.2592 

 0.033 

 

 

 

 

 

*          Amounting to USD 3,177 thousand (2015: USD 2,765 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.

**         Amounting to USD 2,573 thousand (2015: USD 2,803 thousand) of amortization of purchased intangibles acquired in business combination and related acquisition expenses.

 

  

 

  

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Changes in Equity for the Year Ended 31 December

 

 

 

Share

Share

Capital

Retained

 

 

capital

premium

reserves**

Earnings

Total

 

USD thousands

 

Balance as at

 

 

 

 

 

 1 January 2015

 186 

 35,170 

 525 

 6,451 

 42,332 

Total comprehensive

 

 

 

 

 

 income for the year

 

 

 

 

 

Profit for the year

 - 

 - 

 - 

 2,149 

 2,149 

Total comprehensive

 

 

 

 

 

 income for the year

 - 

 - 

 - 

 2,149 

 2,149 

 

 

 

 

 

 

Transactions with

 

 

 

 

 

 owners, recognized

 

 

 

 

 

 directly in equity

 

 

 

 

 

Business combination

 - 

 - 

1,656 

 - 

1,656 

Share-based payments

 - 

 - 

 622 

 - 

 622 

Exercise of options

 4 

 396 

(353)

 - 

 47 

Dividends to owners

 - 

 - 

 - 

(1,527)

(1,527)

Balance as at

 

 

 

 

 

 31 December 2015

 190 

 35,566 

 2,450 

 7,073 

45,279 

 

 

 

 

 

 

Total comprehensive

 

 

 

 

 

 income for the year

 

 

 

 

 

Profit for the year

 - 

 - 

 - 

 16,469 

 16,469 

Total comprehensive

 

 

 

 

 

 income for the year

 - 

 - 

 - 

 16,469 

 16,469 

 

 

 

 

 

 

Transactions with

 

 

 

 

 

 owners, recognized

 

 

 

 

 

 directly in equity

 

 

 

 

 

Business combination

 - 

(344)

(1,656)

 - 

(2,000)

Own shares acquired

(15)

(5,505)

 - 

 - 

(5,520)

Share based payments

 - 

 27 

 453 

 - 

 480 

Exercise of share options

 * 

 15 

(9)

 - 

 6 

Dividends to owners

 - 

 - 

 - 

(3,990)

(3,990)

Balance as at

 

 

 

 

 

 31 December 2016

 175 

 29,759 

 1,238 

 19,552 

 50,724 

 

 

 

*   Less than USD 1 thousand.

** Includes reserves for share-based payments and a commitment to issue shares under business combination (see Note 16) and other comprehensive income.

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

Consolidated Statements of Cash Flows for the Year Ended 31 December

 

 

 

 

 

2016

2015

 

 

Note

USD thousands

USD thousands

 

Cash flows from operating activities

 

 

 

Profit for the year

 

 16,469 

 2,149 

Adjustments for:

 

 

 

Depreciation and amortization

5,6

 5,098 

 3,472 

Net financing expense

 

 118 

 87 

Loss on sale of fixed assets

 

 9 

 - 

Share-based payment

13

 480 

 574 

Income tax expense

4

 3,115 

 642 

 

 

 

 

Change in trade and other receivables

 

(9,244)

(6,017)

Change in trade and other payables

 

 4,004 

 6,419 

Change in employee benefits

 

 183 

(34)

 

 

 

 

Income taxes received

 

 748 

 105 

Income taxes paid

 

(790)

(1,224)

Interest received

 

 104 

 18 

Interest paid

 

(9)

(9)

Net cash provided by operating activities

 

 20,285 

 6,182 

 

Cash flows from investing activities

 

 

 

Increase in pledged deposits

 

(28)

(78)

Acquisition of property, plant and equipment

5

(124)

(336)

Acquisition and capitalization of intangible assets

6

(1,332)

(2,010)

Proceeds from sale of property, plant and equipment

5

 4 

74 

Repayment (grant) of short-term loans

 

 527 

(544)

Proceeds from sale of investments on money market fund

 

 - 

 482 

Acquisition of subsidiaries, net of cash acquired

16

(5,000)

(8,099)

Decrease (increase) in bank deposits, net

 

 8,500 

(8,500)

Net cash provided by (used in) investing activities

 

 2,547 

(19,011)

 

Cash flows from financing activities

 

 

 

Repayment of loans from related parties

 

(111)

Buy back of shares

11A, 16B

(7,520)

 - 

Proceeds from exercise of share options

 

 6 

 47 

Dividends paid

11B

(3,990)

(1,527)

Net cash used in financing activities

 

(11,504)

(1,591)

 

Net increase (decrease) in cash and cash equivalents

 

 11,328 

(14,420)

Cash and cash equivalents as at the beginning of the year

 

 10,173 

 24,664 

Effect of exchange rate fluctuations on cash and cash equivalents

 

(30)

(71)

 

 

 

 

Cash and cash equivalents as at the end of the year

 

 21,471 

 10,173 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016

 

 

Note 1 - General

 

A.        Reporting entity

 

Taptica International Ltd. (the "Company" or "Taptica International") formerly named Marimedia Ltd. was incorporated in Israel under the laws of the state of Israel on 20 March 2007. The address of the registered office is 121 Hahashmonaim Street Tel-Aviv, Israel.

 

Taptica International (AIM: TAP) is a global end-to-end mobile advertising platform that helps the world's top brands reach their most valuable users with the widest range of traffic sources available today, including social. Taptica International's proprietary technology leverages big data, and combined with state-of-the-art machine learning, enables quality media targeting at scale. Taptica International works with leading brands and companies in a variety of domains, all over the world. The Company is headquartered in Tel Aviv with offices in San Francisco, New York, Beijing, and Seoul.

 

On 28 May 2014, the Company's shares began trading on the AIM Market of the London Stock Exchange following the Company's Initial Public Offering ("IPO"). As part of the IPO, the Company issued 11,672,001 ordinary shares, of NIS 0.01 par value in consideration for a gross amount of € 17,858,162 (approximately USD 30 million). The share issue costs amounted to USD 2.2 million (net of tax) and the net consideration amounted to approximately USD 27.5 million (€ 16.4 million).

 

On 1 August 2014, the Company purchased 100% of Taptica Ltd's ("Taptica") share capital for a total consideration of USD 13.84 million.

 

On 7 September 2015, the Company acquired 100% of share capital in Taptica Social Ltd., formerly named AreaOne Ltd. ("Taptica Social") for a total consideration of USD 15.6 million, see also Note 16B.

 

 

B.        Definitions

 

In these financial statements -

 

(1)        The Company - Taptica International Ltd. (former name: Marimedia Ltd.)

 

(2)        The Group -     Taptica International Ltd. and its subsidiaries.

 

(3)        Subsidiaries - Companies, the financial statements of which are fully consolidated, directly or indirectly, with the financial statements of the Company.

 

(4)        Related party - As defined by IAS 24, "Related Party Disclosures".

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 2 - Basis of Preparation

 

A.        Statement of compliance

 

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS).

 

The consolidated financial statements were authorized for issue by the Company's Board of Directors on 17 March 2017.

 

 

B.        Functional and presentation currency

 

These consolidated financial statements are presented in USD, which is the Company's functional currency, and have been rounded to the nearest thousands, except when otherwise indicated. The USD is the currency that represents the principal economic environment in which the Company operates.

 

 

C.        Basis of measurement

 

The consolidated financial statements have been prepared on a historical cost basis except for the following assets and liabilities:

 

•           Deferred tax assets and liabilities

•           Contingent consideration commitment

 

For further information regarding the measurement of these assets and liabilities see Note 3 regarding significant accounting policies.

 

 

D.        Use of estimates and judgments

 

The preparation of financial statements in conformity with IFRS requires management of the Group to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

The preparation of accounting estimates used in the preparation of the Group's financial statements requires management of the Group to make assumptions regarding circumstances and events that involve considerable uncertainty. Management of the Group prepares estimates on the basis of past experience, various facts, external circumstances, and reasonable assumptions according to the pertinent circumstances of each estimate.

 

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

 

Information about significant judgments (other than those involving estimates) made by the management while implementing Group accounting policies and which have the most significant effect on the amounts recognized in the financial statements is included in Note 6, on intangible assets, with respect to the accounting of software development, and Note 16, on subsidiaries, with respect to business combination.

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 2 - Basis of Preparation (cont'd)

 

E.         Determination of fair value

 

Preparation of the financial statements requires the Group to determine the fair value of certain assets and liabilities. When determining the fair value of an asset or liability, the Group uses observable market data as much as possible. There are three levels of fair value measurements in the fair value hierarchy that are based on the data used in the measurement, as follows:

 

•           Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

•           Level 2: inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly

•           Level 3: inputs that are not based on observable market data (unobservable inputs).

 

Further information about the assumptions that were used to determine fair value is included in the following notes:

•           Note 13, on share-based payments;

•           Note 14, on financial instruments; and

•           Note 16, on subsidiaries (regarding business combinations).

 

 

 

Note 3 - Significant Accounting Policies

 

The accounting policies set out below have been applied consistently for all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.

 

A.        Basis of consolidation

 

(1)        Business combinations

 

The Group implements the acquisition method to all business combinations. The acquisition date is the date on which the acquirer obtains control over the acquiree. Control exists when the Group is exposed, or has rights, to variable returns from its involvement with the acquiree and it has the ability to affect those returns through its power over the acquiree. Substantive rights held by the Group and others are taken into account when assessing control.

 

The Group recognizes goodwill on acquisition according to the fair value of the consideration transferred less the net amount of the identifiable assets acquired and the liabilities assumed.

 

The consideration transferred includes the fair value of the assets transferred to the previous owners of the acquiree, the liabilities incurred by the acquirer to the previous owners of the acquiree and equity instruments that were issued by the Company. In addition, the consideration transferred includes the fair value of any contingent consideration. After the acquisition date, the Group recognizes changes in the fair value of contingent consideration classified as a financial liability in profit or loss, whereas contingent consideration classified as an equity instrument is not remeasured.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

A.        Basis of consolidation (cont'd)

 

(1)        Business combinations (cont'd)

 

Costs associated with the acquisitions that were incurred by the acquirer in the business combination such as: finder's fees, advisory, legal, valuation and other professional or consulting fees are expensed in the period the services are received.

 

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards) and relate to past services, then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree's awards and the extent to which the replacement awards relate to past and/or future service. The unvested portion of the replacement award that is attributed to post-acquisition services is recognized as a compensation cost following the business combination. If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree's employees (acquiree's awards) and relate to past services, then all or a portion of the amount of the acquirer's replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based value of the replacement awards compared with the market-based value of the acquiree's awards and the extent to which the replacement awards relate to past and/or future service. The unvested portion of the replacement award that is attributed to post-acquisition services is recognized as a compensation cost following the business combination.

 

(2)        Subsidiaries

 

Subsidiaries are entities controlled by the Group. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commenced, until the date that control is lost.

 

(3)        Transactions eliminated on consolidation

 

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements.

 

 

B.        Foreign currency transactions

 

Transactions in foreign currencies are translated to the respective functional currencies of the Group at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated in to the functional currency at the exchange rate on that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate as of the end of the year.

 

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate on the date that the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate on the date of the transaction.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

C.        Financial instruments

 

(1)        Non-derivative financial assets

 

Initial recognition of financial assets

The Group initially recognizes loans and receivables on the date that they are created. All other financial assets acquired, are recognized initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument, meaning on the date the Group undertook to purchase or sell the asset. Non-derivative financial instruments comprise investments, inter alia, in money market funds, trade and other receivables and cash and cash equivalents.

 

Derecognition of financial assets

Financial assets are derecognized when the contractual rights of the Group to the cash flows from an asset expire, or the Group transfers the rights to receive the contractual cash flows on a financial asset in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are transferred.

 

Ordinary course of business sales of financial assets are recognized on the trade date, meaning on the date the Group undertook to sell an asset.

 

Classification of financial assets into categories and the accounting for each category

The Group classifies its financial assets according to the following categories:

 

Financial assets at fair value through profit or loss

A financial asset is classified at fair value through profit or loss when it is held for trading purposes.

 

Receivables

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition receivables are measured at amortized cost using the effective interest method, less any impairment losses. Receivables comprise cash and cash equivalents, trade and other receivables.

 

Cash and cash equivalents include cash balances available for immediate use and demand deposits. Cash equivalents include short-term highly liquid investments (with original maturities of three months or less) that are readily convertible into known amounts of cash and are exposed to insignificant risks of change in value.

 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

C.        Financial instruments (cont'd)

 

(2)        Non-derivative financial liabilities

 

Non-derivative financial liabilities include trade and other payables.

 

Initial recognition of financial liabilities

The Group initially recognizes all financial liabilities on the trade date on which the Group becomes a party to the contractual provisions of the instrument.

 

Financial liabilities are recognized initially at fair value minus any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.

 

Derecognition of financial liabilities

Financial liabilities are derecognized when the obligation of the Group, as specified in the agreement, expires or when it is discharged or cancelled.

 

Offset of financial instruments

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

 

(3)        Share capital

 

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issuance of ordinary shares are recognized as a deduction from equity, net of any tax effects.

 

Treasury shares

When share capital recognized as equity is repurchased by the Group, the amount of the consideration paid, which includes directly attributable costs is recognized as a deduction from share premium.

 

D.        Fixed Assets

 

Fixed assets are measured at cost less accumulated depreciation. Depreciation is provided on all property, plant and equipment at rates calculated to write each asset down to its residual value (assumed to be nil), using the straight line method, over its expected useful life as follows:

 

 

Years

Computers

3

Office furniture and equipment

6-17

Motor vehicles

7

Leasehold improvements

The shorter of the lease term and the useful life

 

An asset is depreciated from the date it is ready for use, meaning the date it reaches the location and condition required for it to operate in the manner intended by management.

 

Depreciation methods, useful lives and residual values are reviewed at the end of each reporting year and adjusted if appropriate.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

E.         Intangible assets

 

(1)        Software development

 

Costs that are directly associated with the development of identifiable and unique software products controlled by the Group are recognized as intangible assets when all the criteria in IAS 38 are met.

Development costs are capitalized only when it is probable that future economic benefit will result from the project and the following criteria are met:

 

•     the technical feasibility of the product has been ascertained;

•     adequate technical, financial and other resources are available to complete and sell or use the intangible asset;

•     the Group can demonstrate how the intangible asset will generate future economic benefits and the ability to use or sell the intangible asset can be demonstrated;

•     it is the intention of management to complete the intangible asset and use it or sell it; and

•     the development costs can be measured reliably.

 

In subsequent periods, these costs are amortized over the useful economic life of the asset.

 

Where these criteria are not met development costs are charged to the statement of comprehensive income as incurred.

 

The estimated useful lives of developed software is three years.

 

Amortization methods, useful lives and residual values are reviewed at the end of each reporting year and adjusted if appropriate.

 

(2)        Acquired software

 

Acquired software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software licenses. These costs are amortized over their estimated useful lives (3-5 years) using the straight line method. Costs associated with maintaining software programs are recognized as an expense as incurred.

 

(3)        Goodwill

 

Goodwill that arises upon the acquisition of subsidiaries is presented as part of intangible assets. For information on measurement of goodwill at initial recognition, see Note 3A(1).

 

In subsequent periods goodwill is measured at cost less accumulated impairment losses. The Group has identified its entire operation as a single cash generating unit (CGU). As of 31 December 2016 and 2015, the CGU's recoverable amount was based on the fair value of the Company's quoted share price (level 1). According to management assessment, no impairment in respect to goodwill has been recorded.

 

(4)        Other intangible assets

 

Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortization and accumulated impairment losses.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

E.         Intangible assets (cont'd)

 

(5)        Amortization

 

Amortization is a systematic allocation of the amortizable amount of an intangible asset over its useful life. The amortizable amount is the cost of the asset less its accumulated residual value.

 

Internally generated intangible assets, such as software development costs, are not systematically amortized as long as they are not available for use, i.e. they are not yet on site or in working condition for their intended use. Goodwill is not systematically amortized as well, but is tested for impairment at least once a year.

 

The Group examines the amortization methods, useful life and accumulated residual values of its intangible assets at least once a year (usually at the end of each reporting period) in order to determine whether events and circumstances continue to support the decision that the intangible asset has an indefinite useful life.

 

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of the intangible assets from the date they are available for use, since this method most closely reflects the expected pattern of consumption of the future economic benefits embodied in each asset, such as development costs, are tested for impairment at least once a year until such date as they are available for use.

 

The estimated useful lives for the current and comparative periods are as follows:

 

-          Trademarks                                             5 years

-          Software (developed and acquired)           3-5 years

-          Customer relationships                             5-7 years

-          Technology                                              5 years

-          Distribution channel                                  5 years

 

F.         Impairment of financial assets

 

A financial asset not carried at fair value through profit or loss is tested for impairment when objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.

 

The Group considers evidence of trade receivables and other receivables at a specific asset level.

Losses are recognized in profit or loss and reflected in a provision for loss against the balance of the receivable.

 

G.        Impairment of non-financial assets

 

Non-financial assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which an asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Non-financial assets that were subject to impairment are reviewed for possible reversal of the impairment recognized in respect thereof at each statement of financial position date.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

H.        Employee benefits

 

(1)        Post-employment benefits

 

The Group's main post-employment benefit plan is under section 14 to the Severance Pay Law ("Section 14"), which is accounted for as a defined contribution plan. In addition, for certain employees, the Group has an additional immaterial plan that is accounted for as a defined benefit plan. These plans are usually financed by deposits with insurance companies or with funds managed by a trustee.

 

(a)        Defined contribution plans

 

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an expense in the statement of comprehensive income in the periods during which related services are rendered by employees.

 

According to Section 14 the payment of monthly deposits by a company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to the employees that have entered into agreements with the company pursuant to such Section 14. The Company has entered into agreements with a majority of its employees in order to implement Section 14. Therefore, the payment of monthly deposits by the Company into recognized severance and pension funds or insurance policies releases it from any additional severance obligation to those employees that have entered into such agreements and therefore the Company incurs no additional liability with respect to such employees.

 

(b)        Defined benefit plans

 

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value, and the fair value of any plan assets is deducted. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset).

 

(2)        Short-term benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided or upon the actual absence of the employee when the benefit is not accumulated (such as maternity leave).

 

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

 

The employee benefits are classified, for measurement purposes, as short-term benefits or as other long-term benefits depending on when the Group expects the benefits to be wholly settled.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

H.        Employee benefits (cont'd)

 

(3)        Share-based payment transactions

The grant date fair value of share-based payment awards granted to employees is recognized as a salary expense with a corresponding increase in equity, over the period that an employee becomes unconditionally entitled to an award. The amount recognized as an expense in respect of share-based payment awards that are conditional upon meeting service vesting conditions, is adjusted to reflect the number of awards that are expected to vest.

 

 

I.          Revenue recognition

 

The Group earns its revenue from providing user acquisition services by using technological tools and developments. The Company's business is based on optimizing real time trading of digital advertising between buyers and sellers.

 

The revenue is comprised of different pricing schemes such as Cost per Mil Impression (CPM) and performance based metrics that include Cost per Click (CPC) and Cost per Action (CPA) options.

 

Revenue from advertising services is recognized by multiplying an agreed amount per Mil Impression/click/ action with the volumes of these units delivered.

 

The Group acts as the principle in these arrangements and reports revenue earned and costs incurred on a gross basis.

 

 

J.         Classification of expenses

 

Cost of revenues

Cost of revenues consists primarily of traffic acquisition costs that are directly attributable to revenue generated by the Company.

 

Research and development

Research and development expenses consist primarily of compensation and related costs for personnel responsible for the research and development of new and existing products and services and amortization of certain intangible assets (see also Note 6). Where required, development expenditures are capitalized in accordance with the Company's standard internal capitalized development policy in accordance with IAS 38 (also see Note 3E). All research costs are expensed when incurred.

 

Selling and marketing

Selling and marketing expenses consist primarily of compensation and related costs for personnel engaged in customer service, sales, and sales support functions, as well as advertising and promotional expenditures and amortization of certain intangible assets (see also Note 6).

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

J.         Classification of expenses (cont'd)

 

General and administrative

General and administrative expenses consist primarily of compensation and related costs for personnel, and include costs related to the Company's facilities, finance, human resources, information technology, legal organizations and fees for professional services. Professional services are principally comprised of outside legal, and information technology consulting and outsourcing services that are not directly related to other operational expenses.

 

 

K.        Financing income and expenses

 

Financing income comprises interest income on funds invested, changes in the fair value of financial assets held for trading and foreign currency gains. Interest income is recognized as it accrues using the effective interest method.

 

Changes in the fair value of financial assets at fair value through profit or loss also include income from interest.

 

Foreign currency gains and losses on financial assets and financial liabilities are reported on a net basis as either financing income or financing expenses depending on whether foreign currency movements are in a net gain or net loss position.

 

 

L.         Income tax expense

 

Income tax comprises current and deferred tax. Current tax and deferred tax are recognized in the statement of comprehensive income except to the extent that they relate to a business combination.

 

Current taxes

Current tax is the expected tax payable (or receivable) on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date.

 

Deferred taxes

Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.

 

Deferred tax is not recognized for the following temporary differences:

•           The initial recognition of goodwill; and

•           Differences relating to investments in subsidiaries to the extent it is probable that they will not   reverse in the foreseeable future, either by way of selling the investment or by way of distributing taxable dividends in respect of the investment.

 

The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

L.         Income tax expense (cont'd)

 

A deferred tax asset is recognized for tax benefits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

 

Offset of deferred tax assets and liabilities

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.

 

 

M.       Earnings per share

 

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the weighted average number of ordinary shares outstanding, for the effects of all dilutive potential ordinary shares, which mainly comprise of share options granted to employees and certain equity instruments resulting from business combination transactions.

 

 

N.        Dividends

 

Dividend distribution to the Group's owners is recognized as a liability in the Group's consolidated statement of financial position on the date on which the dividends are approved by the Group's Board of Directors.

 

 

O.        Leases

 

The Group's leases are classified as operating leases, and the leased assets are not recognized on the Group's statement of financial position. Payments made under operating leases, other than conditional lease payments, are recognized in profit or loss on a straight-line basis over the term of the lease. Minimum lease payments made under operating leases are recognized in profit or loss as incurred.

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 3 - Significant Accounting Policies (cont'd)

 

P.         New standards and interpretations not yet adopted

 

IFRS 9 (2014), Financial Instruments

 

IFRS 9 (2014) is a final version of the standard, and includes revised guidance on the classification and measurement of financial instruments, and a new model for measuring impairment of financial assets.

 

IFRS 9 (2014) is effective for annual periods beginning on or after 1 January 2018 with early adoption being permitted. It will be applied retrospectively with some exemptions.

 

The Group has examined the effects of applying IFRS 9 (2014), and in its opinion the effect on the financial statements will be immaterial.

 

IFRS 15, Revenue from Contracts with Customers

 

IFRS 15 replaces the current guidance regarding recognition of revenues and presents a new model for recognizing revenue from contracts with customers. IFRS 15 provides two approaches for recognizing revenue: at a point in time or over time. The model includes five steps for analyzing transactions so as to determine when to recognize revenue and at what amount. Furthermore, IFRS 15 provides new and more extensive disclosure requirements than those that exist under current guidance.

 

IFRS 15 is applicable for annual periods beginning on or after 1 January 2018 and earlier application is permitted.

 

The Group has examined the effects of applying IFRS 15, and in its opinion the effect on the financial statements will be immaterial.

 

IFRS 16, Leases

 

The standard replaces International Accounting Standard 17 - Leases (IAS 17) and its related interpretations. The standard's instructions annul the existing requirement from lessees to classify leases as operating or finance leases. Instead of this, for lessees, the new standard presents a unified model for the accounting treatment of all leases according to which the lessee has to recognize an asset and liability in respect of the lease in its financial statements. Similarly, the standard determines new and expanded disclosure requirements from those required at present.

 

The standard will become effective for annual periods as of 1 January 2019, with the possibility of early adoption, so long as the company has also early adopted IFRS 15 - Revenue from contracts with customers. The standard includes a number of alternatives for the implementation of transitional provisions, so that companies can choose one of the following alternatives at the implementation date: full retrospective implementation or implementation from the effective date while adjusting the balance of retained earnings at that date.

 

The Group has not yet commenced examining the effects of IFRS 16 on the financial statements.

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 4 - Income Tax

 

A.        Details regarding the tax environment of the Group

 

(1)        Corporate tax rate

 

(a)        Presented hereunder are the tax rates relevant to the group in the years 2015-2016:

2015 - 26.5%

2016 - 25%

 

On 4 January 2016 the Israeli Parliament passed the Law for Amendment of the Israeli Tax Ordinance (Amendment 216), by which, the corporate income tax rate would be reduced by 1.5% to 25% as of 2016 and thereafter.

 

Furthermore, on 22 December 2016 the Israeli Parliament passed the Economic Efficiency Law (Legislative Amendments for Achieving Budget Objectives in the Years 2017 and 2018) - 2016 ("The Economic Efficiency Law"), by which, inter alia, the corporate tax rate would be reduced from 25% to 23% in two steps. The first step will be to a rate of 24% as from January 2017 and the second step will be to a rate of 23% as from January 2018.

 

As a result of the reduction in the tax rate to 23% in two steps, the deferred tax balances as at 31 December 2016 were calculated according to the new tax rate specified in the Economic Efficiency Law, at the tax rate expected to apply on the date of reversal.

The effect of the changes described above on the financial statements as at December 31, 2016 is reflected in a decrease in the deferred tax liabilities in the amount of USD 771 thousand and a decrease in the deferred tax assets in the amount of USD 158 thousand. The adjustment in deferred tax balances was recognized against deferred tax expenses/income in the amount of USD 613 thousand.

 

Current taxes for the reported periods are calculated according to the tax rates presented above.

 

(b)        According to various amendments to the Income Tax Ordinance (New Version) - 1961 (hereinafter - "the Ordinance"), IFRS shall not apply when determining the taxable income for the 2007 through 2013 tax years even if IFRS was applied when preparing the financial statements.

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 4 - Income Tax (cont'd)

 

A.        Details regarding the tax environment of the Group (cont'd)

 

(2)        Benefits under the Law for the Encouragement of Capital Investments

 

Amendment to the Law for the Encouragement of Capital Investments - 1959

 

On 29 December 2010 the Israeli Parliament approved the Economic Policy Law for 2011-2012, which includes an amendment to the Law for the Encouragement of Capital Investments - 1959 (the "Amendment"). The Amendment is effective from 1 January 2011 and its provisions apply to preferred income derived or accrued in 2011 and thereafter by a preferred company, per the definition of these terms in the Amendment.

 

A preferred enterprise track was introduced, which mainly provides a uniform and reduced tax rate for all the company's income entitled to benefits, such as: in the 2011-2012 tax years - a tax rate of 10% for Development Area A and of 15% for the rest of the country, in the 2013-2014 tax years - a tax rate of 7% for Development Area A and of 12.5% for the rest of the country, and as from the 2015 tax year - 6% for Development Area A and 12% for the rest of the country. On August 5, 2013 the Knesset passed the Law for Changes in National Priorities (Legislative Amendments for Achieving Budget Objectives in the Years 2013 and 2014) - 2013, which cancelled the planned tax reduction so that as from the 2014 tax year the tax rate on preferred income will be 9% for Development Area A and 16% for the rest of the country.

 

The Company and Taptica Social obtained a tax ruling (the "Ruling") from the Israeli Tax Authorities (the "ITA"), effective for years 2012 - 2016 and 2013-2017, respectively, which determines that the Company owns an industrial enterprise as defined in the Law for the Encouragement of Capital Investments - 1959.

Based on the Ruling, income derived from the industrial enterprise, which is considered "Preferred Income", should be eligible for tax benefits during the aforementioned period (Non A development area), subject to the limitations set forth in the Ruling. However, the Ruling has determined that income which is not considered part of the Company's "Preferred Income" shall not be entitled to the "Preferred Income" tax benefits and will be subject to the standard Israeli corporate tax rate.

 

In June 2016, Taptica appealed for a tax ruling, similar to those that have been obtained as stated above. Based on several discussions that took place during 2016 with the Israeli Tax Authorities, the Company believes that it is probable that the ruling will be obtained. Subsequent to the balance sheet date, a draft of the tax ruling was obtained by the Company.

 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 4 - Income Tax (cont'd)

 

B.        Composition of income tax expense

 

 

 

 

Year ended 31 December

 

 

 

2016

2015

 

 

 

USD thousands

USD thousands

 

Current tax expense

 

 

Current year

 4,172 

 624 

Adjustment for prior years, net

 - 

 37 

 

 4,172 

 661 

Deferred tax expense (income)

 

 

Creation and reversal of temporary differences

(444)

(20)

Change in tax rate

(613)

 1 

 

(1,057)

(19)

 

 

 

Income tax expense

 3,115 

 642 

 

 

C.        Reconciliation between the theoretical tax on the pre-tax profit and the tax expense:

 

 

 

 

Year ended 31 December

 

 

 

2016

2015

 

 

 

USD thousands

USD thousands

 

Profit before taxes on income

 19,584 

 2,791 

Primary tax rate of the Company

25%

26.5%

Tax calculated according to the Company's primary tax rate

 4,896 

 740 

 

 

 

Additional tax (tax saving) in respect of:

 

 

Non-deductible expenses

 242 

 156 

Effect of reduced tax rate on preferred income

 

 

 according to the Law for the Encouragement of

 

 

 Capital Investments - 1959

(1,492)

(134)

Utilization of tax losses from prior years for which

 

 

 deferred taxes were not created

 (6) 

(302)

Effect on deferred taxes at a rate different from the

 

 

 primary tax rate

(506)

(4)

Foreign tax rate differential

 161 

 111 

Other differences

(180)

 75 

Income tax expenses

 3,115 

 642 

 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 4 - Income Tax (cont'd)

 

D.        Deferred tax assets and liabilities

 

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities are presented below:

 

 

 

Carry-forward

Initial public

 

 

 

Intangible

tax deductions

offering

 

 

 

Assets

and losses

costs

Other

Total

 

USD thousands

USD thousands

USD thousands

USD thousands

USD thousands

 

Balance of deferred tax asset

 

 

 

 

 

 (liability) as at 1 January 2015

(2,269)

 770 

 284 

 66 

(1,149)

 

 

 

 

 

 

Changes recognized in profit or loss

 683 

(618)

(158)

 113 

 20 

 

 

 

 

 

 

Recognized in respect of

 

 

 

 

 

 business combination

(1,477)

 56 

 - 

 21 

(1,400)

 

 

 

 

 

 

Effect of change in tax rate

 1 

 - 

(2)

 - 

(1)

 

 

 

 

 

 

Effect of change due to transition

 

 

 

 

 

 to Dollar Regulations

 - 

 - 

 34 

 - 

 34 

 

 

 

 

 

 

Balance of deferred tax asset

 

 

 

 

 

 (liability) as at 31 December 2015

(3,062)

 208 

 158 

 200 

(2,496)

 

 

 

 

Carry-forward

Initial public

 

 

 

Intangible

tax deductions

offering

 

 

 

Assets

and losses

costs

Other

Total

 

USD thousands

USD thousands

USD thousands

USD thousands

USD thousands

 

Balance of deferred tax asset

 

 

 

 

 

 (liability) as at 1 January 2016

(3,062)

 208 

 158 

 200 

(2,496)

 

 

 

 

 

 

Changes recognized in profit or loss

 599 

(162)

(146)

 153 

 444 

 

 

 

 

 

 

Effect of change in tax rate

 700 

(46)

(12)

(29)

 613 

 

 

 

 

 

 

Balance of deferred tax asset

 

 

 

 

 

 (liability) as at 31 December 2016

(1,763)

 - 

 - 

 324 

(1,439)

 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 5 - Fixed Assets, net

 

 

 

 

Office

 

 

 

 

Motor

furniture and

Leasehold

 

 

Computers

vehicles

equipment

improvements

Total

 

USD thousands

 

Cost

 

 

 

 

 

 

Balance as at 1 January 2015

 388 

 117 

 97 

 319 

 921 

 

 

 

 

 

 

 

 

Additions

 42 

 - 

 27 

 267 

 336 

 

Business combination

 23 

 - 

 34 

 24 

 81 

 

Disposals

 - 

(117)

 - 

 - 

(117)

 

Balance as at 31 December 2015

 453 

 - 

 158 

 610 

 1,221 

 

 

 

 

 

 

 

 

Additions

 76 

 - 

 15 

 33 

 124 

 

Disposals

(2)

 - 

(15)

 - 

(17)

 

Balance as at 31 December 2016

 527 

 - 

 158 

 643 

 1,328 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

 

 

 

Balance as at 1 January 2015

 227 

 29 

 14 

 82 

 352 

 

 

 

 

 

 

 

 

Additions

 95 

 14 

 10 

 279 

 398 

 

Disposals

 - 

(43)

 - 

 - 

(43)

 

Balance as at 31 December 2015

 322 

 - 

 24 

 361 

 707 

 

 

 

 

 

 

 

 

Additions

 99 

 - 

 34 

 59 

 192 

 

Disposals

(1)

 - 

(3)

 - 

(4)

 

Balance as at 31 December 2016

 420 

 - 

 55 

 420 

 895 

 

 

 

 

 

 

 

Carrying amounts

 

 

 

 

 

 

 

 

 

 

 

As at 1 January 2015

 161 

 88 

 83 

 237 

 569 

 

 

 

 

 

 

As at 31 December 2015

 131 

 - 

 134 

 249 

 514 

 

 

 

 

 

 

As at 31 December 2016

 107 

 - 

 103 

 223 

 433 

               

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 6 - Intangible Assets, net

 

 

 

 

 

 

 

 

 

 

 

Customer

 

Distribution

Residual

 

 

Software

Trademarks

relationships

Technology

channel

Goodwill

Total

 

USD thousands

 

Cost

 

 

 

 

 

 

 

Balance as at

 

 

 

 

 

 

 

 1 January 2015

 2,140 

 2,907 

 539 

 5,622 

 - 

 10,719 

 21,927 

 

 

 

 

 

 

 

 

Additions

 1,794 

 - 

 - 

 - 

 - 

 - 

 1,794 

Business combination

 - 

 2,100 

 361 

 4,851 

 1,044 

 8,881 

 17,237 

 

 

 

 

 

 

 

 

Balance as at

 

 

 

 

 

 

 

 31 December 2015

 3,934 

 5,007 

 900 

 10,473 

 1,044 

 19,600 

 40,958 

 

 

 

 

 

 

 

 

Additions

 1,332 

 - 

 - 

 - 

 - 

 - 

 1,332 

 

 

 

 

 

 

 

 

Balance as at

 

 

 

 

 

 

 

 31 December 2016

 5,266 

 5,007 

 900 

 10,473 

 1,044 

 19,600 

 42,290 

 

 

 

 

 

 

 

 

Amortization

 

 

 

 

 

 

 

Balance as at

 

 

 

 

 

 

 

 1 January 2015

 543 

 234 

 43 

 444 

 - 

 - 

 1,264 

 

 

 

 

 

 

 

 

Additions

 731 

 730 

 128 

 1,415 

 70 

 - 

 3,074 

 

 

 

 

 

 

 

 

Balance as at

 

 

 

 

 

 

 

 31 December 2015

 1,274 

 964 

 171 

 1,859 

 70 

 - 

 4,338 

 

 

 

 

 

 

 

 

Additions

 1,729 

 1,001 

 186 

 1,782 

 208 

 - 

 4,906 

 

 

 

 

 

 

 

 

Balance as at

 

 

 

 

 

 

 

 31 December 2016

 3,003 

 1,965 

 357 

 3,641 

 278 

 - 

 9,244 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Carrying amounts

 

 

 

 

 

 

 

As at 1 January 2015

 1,597 

 2,673 

 496 

 5,178 

 - 

 10,719 

 20,663 

 

 

 

 

 

 

 

 

As at 31 December 2015

 2,660 

 4,043 

 729 

 8,614 

974 

 19,600 

 36,620 

 

 

 

 

 

 

 

 

As at 31 December 2016

 2,263 

 3,042 

 543 

 6,832 

 766 

 19,600 

 33,046 

 

A.        Amortization

 

The amortization of technology and software is allocated to research and development expenses and amortization of trademarks, distribution channel and customer relationships is allocated to selling and marketing expenses.

 

B.        Capitalized development costs

 

Development costs capitalized in the period amounted to USD 1,172 thousand (2015: USD 1,313 thousand) and were classified under software.

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 7 - Trade and Other Receivables

 

 

31 December

 

 

2016

2015

 

 

USD thousands

USD thousands

 

Trade receivables, net (1)

 27,443 

 19,168 

 

 

 

Other receivables

 

 

Prepaid expenses

 391 

 156 

Institutions

 1,314 

 653 

Related parties (see Note 15)

 4 

 55 

Pledged deposits

 181 

 150 

Short-term loan

 - 

 544 

 

 1,890 

 1,558 

 

 

 

 

 29,333 

 20,726 

 

(1)   Including trade receivables due from related parties in the amount of USD 12 thousand and USD 7 thousand, as at 31 December 2016 and 2015, respectively. (See also Note 15).

 

 

 

Note 8 - Trade and Other Payables

 

31 December

 

 

2016

2015

 

 

USD thousands

USD thousands

 

Trade payables (1)

 22,501 

 20,366 

 

 

 

Other payables

 

 

Advances from customers

 1,297 

 1,360 

Wages and salaries

 3,217 

 1,461 

Provision for vacation

 517 

 321 

Institutions

 4,071 

 215 

Related parties (see Note 15)

 17 

 27 

Contingent consideration commitment (see Note 16B)

 200 

 2,495 

Others

 124 

 70 

 

 9,443 

 5,949 

 

 

 

 

 31,944 

 26,315 

 

(1)   Including trade payables due to related parties in the amount of USD 13 thousand and USD 46 thousand, as at 31 December 2016 and 2015, respectively. (See also Note 15).

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 9 - Cash and Cash Equivalents

 

 

 

31 December

 

 

2016

2015

 

 

USD thousands

USD thousands

 

Cash

 

 20,571 

 10,111 

Bank deposits

 

 900 

 62 

Cash and cash equivalents

 

 21,471 

 10,173 

 

The Group's exposure to credit, and currency risks are disclosed in Note 14 on financial instruments.

 

 

 

Note 10 - General and Administrative Expenses

 

 

 

Year ended 31 December

 

2016

2015

 

USD thousands

USD thousands

 

Payroll and related expenses

 2,627 

 1,967 

Rent and office maintenance

 675 

 1,139 

Professional expenses

 1,044 

 871 

Doubtful debts

 589 

 300 

Other expenses

 984 

 1,187 

 

 

   

 

 5,919 

 5,464 

 

 

 

Note 11 - Equity

 

A.        Share capital (in thousands of shares of NIS 0.01 par value)

 

 

 

Ordinary shares

 

2016

2015

 

Issued and paid-in share capital as at 31 December

 60,447 

 66,405 

 

 

   

Authorized share capital

 300,000 

 300,000 

 

(1)        Rights attached to share

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at general meetings of the Company. All shares rank equally with regard to the Company's residual assets.

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 11 - Equity (cont'd)

 

A.        Share capital (in thousands of shares of NIS 0.01 par value) (cont'd)

 

(2)        Director share allotment

According to Director's employment commitment letter, the Company is committed to issue shares worth of GBP 6,250 each quarter in consideration of the director's services. On May 2016, the commitment to issue shares was terminated and the consideration was replaced to cash payments. In the year ended 31 December 2016, the Company issued 25,442 ordinary shares of a par value of NIS 0.01 based on the share price on the date of the issuance. The total expenses recognized in the statement of Comprehensive Income in the year ended 31 December 2016 with respect to the director share allotment amounted to USD 27 thousand.

 

(3)        Own share acquisition

On 26 March 2016 the Company acquired 6 million Ordinary Shares of NIS 0.01 ("Ordinary Shares") at a price of GBP 0.65 per share for a total consideration of GBP 3,900 thousand (USD 5,520 thousand) from Cababie Holdings Limited and Dooi Holdings Limited (together the "Vendors"). The shares purchased represent approximately 8.76% of the total voting rights of the Company as of the acquisition date.

 

On 20 June 2016, the Board of the Company resolved to exercise its option to finalize the acquisition of Taptica Social in cash consideration, which includes purchasing 2,088,337 ordinary shares of the Company that had been issued to the shareholders of Taptica Social and held in escrow ("Escrow Shares"). The acquisition of the Escrow Shares took place on 30 June 2016 and the purchased shares were reclassified as Treasury Shares. (see Note 16B)

 

 

B.        Dividends

 

Details on dividends (in USD thousand):

 

 

For the year

For the year

 

ended

ended

 

31 December 2016

31 December, 2015

 

USD thousands

USD thousands

 

Declared and paid

 3,990 

 1,527 

 

A dividend in the amount of USD 1,527 thousand (USD 0.023 per ordinary share) that was declared in March 2015 was paid in June 2015.

 

A dividend in the amount of USD 490 thousand (USD 0.00784 per ordinary share) that was declared in March 2016, was paid in June 2016.

 

A dividend in the amount of USD 3,500 thousand (USD 0.0579 per ordinary share) that was declared in August 2016, was paid in November 2016.

 

For a dividend that was declared subsequent to the balance sheet date- see Note 18.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 12 - Earnings per Share

 

Basic earnings per share

 

The calculation of basic earnings per share as at 31 December 2016 and 2015 was based on the profit for the year divided by a weighted average number of ordinary shares outstanding, calculated as follows:

 

 

Profit for the year

 

 

 

Year ended 31 December

 

 

 

2016

2015

 

 

 

USD thousands

 

Profit for the year

 16,469 

 2,149 

 

Weighted average number of ordinary shares:

 

 

 

Year ended 31 December

 

 

 

2016

2015

 

 

 

Shares of NIS 1

Shares of NIS 1

 

 

 

0.01 par value

0.01 par value

 

Weighted average number of ordinary shares used to

 

   

 calculate basic earnings per share as at 31 December

 62,682,253 

 65,990,349 

 

 

   

Basic earnings per share

 0.2627 

 0.033 

 

Diluted earnings per share

 

The calculation of diluted earnings per share as at 31 December 2016 and 2015 was based on profit for the year divided by a weighted average number of shares outstanding after adjustment for the effects of all dilutive potential ordinary shares, calculated as follows:

 

 

Weighted average number of ordinary shares (diluted):

 

 

Year ended 31 December

 

 

2016

2015

 

 

Shares of NIS

Shares of NIS

 

 

0.01 par value

0.01 par value

 

Weighted average number of ordinary shares used to

 

 

   

 calculate basic earnings per share

 

 62,682,253 

 65,990,349 

Effect of share options on issue

 

 856,519 

 11,360 

Weighted average number of ordinary shares used to

 

 

   

 calculate diluted earnings per share

 

 63,538,772 

 66,001,709 

 

 

 

   

Diluted earnings per share

 

 0.2592 

 0.033 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 13 - Share-Based Payment Arrangements

 

(1)        Expense recognized in the statement of comprehensive income is as follows:

 

 

 

Year ended 31 December

 

 

 

2016

2015

 

 

 

USD thousands

 

Selling and marketing

 

 

 303 

 407 

Research and development

 

 

 95 

 84 

General and administrative

 

 

 55 

 83 

 

 

 

 453 

 574 

 

(2)        Share-based compensation plan

The terms and conditions related to the grants of the share option programs are as follows:

·    All the share options that were granted are non-marketable.

·    All options are to be settled by physical delivery of shares.

·    Vesting conditions are based on a service period of between 3-5 years.

            In June 2015, the Board of the Company approved a change in the exercise price and vesting terms relating to 2,861,000 options for ordinary shares held by certain employees under the Plan (the "Amended Options"). The Amended Options were originally granted as follows:

 

·    1,015,000 were granted on 1 February 2014 exercisable from 1 February 2016 at a price of USD 2.28 each with an expiry date of 1 February 2024

·    1,846,000 were granted on 24 February 2015 with an exercise price of GBP 1.3232, with the same gradual four-year vesting period as that described above for the New Options (with the exercise period commencing on the second anniversary of 24 February 2015) and an expiry date of 24 February 2020

 

The Amended Options are exercisable at a price of 90 pence each. The options granted on 1 February 2014 will now vest and become exercisable on 30 June 2017, while the expiration date remains on 1 February 2024. The vesting and exercise periods of the options granted on 24 February 2015 remain unchanged. The incremental fair value (amounting to USD 451 thousand) is recognized over the remaining vesting period.

 

(3)        Option grants during 2016 and 2015

 

 

 

Number of

 

 

 

 

options

Exercise

Grant date

 

 

(thousands)

Price

 

Options granted on 24 February 2015

 

 

 2,328 

GBP 1.32

Options granted on 30 June 2015

 

 

 1,509 

GBP 0.90

Options granted on 1 November 2015

 

 

 1,632 

GBP 0.65

Options granted on 22 November 2015

 

 

 157 

GBP 0-0.24

Options granted on 14 December 2015

 

 

 150 

GBP 0.65

Options granted on 15 March 2016

 

 

160 

GBP 0.8

Options granted on 31 May 2016

 

 

1,248 

GBP 0.79

Options granted on 30 August 2016

 

 

350 

GBP 1.19

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 13 - Share-Based Payment Arrangements (cont'd)

 

 

(4)        The number of share options is as follows:

 

 

Weighted average exercise price

Number of options

 

2016

2015

2016

2015

 

(USD)

(Thousands)

         

 

Outstanding at 1 January

1.6

0.76

 5,144 

 3,217 

Forfeited during the year

1.36

1.61

(1,360)

(2,167)

Exercised during the year

0.33

0.03

(16)

(1,682)

Granted during the year

1.23

1.26

 1,758 

 5,776 

 

 

 

 

   

Outstanding at 31 December

 

 

 5,526 

 5,144 

 

 

 

 

   

Exercisable at 31 December

 

 

 - 

 19 

 

(5)        Information on measurement of fair value of share-based payment plans

 

The fair value of employee share options is measured using the Black-Scholes formula. Measurement inputs include the share price on the measurement date, the exercise price of the instrument, expected volatility, expected term of the instruments, expected dividends, and the risk-free interest rate (based on government debentures).

 

The parameters used in the measurement of the fair values at grant date of the equity-settled share-based payment plans were as follows:

 

 

 

 

 

The parameters used to calculate fair value:

 

 

 

 

2016

2015

 

 

 

Grant date fair value in USD

0.229-0.377

0.32-0.96

Share price (on grant date) (in GBP)

0.8-1.28

0.63-1.32

Exercise price (in GBP)

0.79-1.19

0.01-1.3232

Expected volatility (weighted average)

40%

35%

Expected life (weighted average)

5

5

Expected dividends

4%-6%

0%

Risk-free interest rate

1.18%-1.5%

0.67-1.66%

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 14 - Financial Instruments

 

A.        Overview

 

The Group has exposure to the following risks from its use of financial instruments:

-          Credit risk

-          Liquidity risk

-          Market risk

 

This note presents quantitative and qualitative information about the Group's exposure to each of the above risks, and the Group's objectives, policies and processes for measuring and managing risk.

 

B.        Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group's trade and other receivables and investment securities.

 

Exposure to credit risk

 

The carrying amount of financial assets represents the maximum credit exposure.

The maximum exposure to credit risk at the reporting date was as follows:

 

 

31 December

 

 

 

2016

2015

 

 

 

USD thousands

USD thousands

 

Cash and cash equivalents (1)

 

 21,471 

 10,173 

Bank deposits (2)

 

 - 

 8,516 

Trade receivables, net (3)

 

 27,443 

 19,168 

Other receivables

 

 185 

 749 

 

 

 

   

 

 

 49,099 

 38,606 

 

(1)     At 31 December 2016, USD 475 thousand are held in NIS, USD 160 thousand are held in GBP and USD 149 thousand are held in EUR, with the remainder held in USD. At 31 December 2015, USD 491 thousand are held in NIS, USD 372 thousand are held GBP, and USD 271 thousand are held in EUR, with the remainder held in USD.

(2)     In 2015 bank deposits are held in USD at two large banks in Israel, for a duration of 6 months, carrying a weighted average interest rate of 0.6%.

(3)     At 31 December 2016, the Group included provision to doubtful debts in the amount of USD 655 thousand (31 December 2015: USD 510 thousand) in respect of specific debtors that their collectability is in doubt.

 

C.        Liquidity risk

 

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's approach to managing liquidity is to ensure, as far as possible, that it has sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

As of December 31, 2016 and 2015, the Group's contractual obligation of financial liability is in respect of Trade and other payables in the amount of USD 22,842 thousand and USD 22,931 thousand, respectively. The contractual maturity of this financial liability is less than one year and in its carrying amount.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 14 - Financial Instruments (cont'd)

 

D.        Market risk

 

Market risk is the risk that changes in market prices, such as foreign exchange rates, the CPI, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return.

 

Linkage and foreign currency risks

 

Currency risk

The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Group, the US dollar (USD). The principal currencies in which these transactions are denominated are NIS, Euro and GBP.

At any point in time, the Group aims to match the amounts of its assets and liabilities in the same currency in order to hedge the exposure to changes in currency.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

 

 

E.         Fair value

 

The Company's financial instruments consist mainly of cash and cash equivalents, bank deposits, marketable securities, trade and other receivables, trade and other payables and contingent consideration. The carrying amounts of these financial instruments, except for the contingent consideration, approximate their fair value because of the short maturity of these investments. The contingent consideration is classified as level 3 under IFRS 13. Such amounts have been recorded initially and subsequently at their fair value (see note 16).

 

The table hereunder presents reconciliation from the beginning balance to the ending balance of contingent consideration carried at fair value level 3 of the fair value hierarchy.

 

 

 

 

 

Contingent consideration

 

Balance as at September 7, 2015 (see also Note 16B)

 

 

 4,602 

 

 

 

 

Expenses recognized in profit and loss

 

 

 170 

 

 

 

 

Balance as at December 31, 2015

 

 

 4,772 

 

 

 

 

Expenses recognized in profit and loss

 

 

 428 

 

 

 

 

Settlement of partial contingent consideration

 

 

(5,000)

 

 

 

 

Balance as at December 31, 2016

 

 

 200 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 15 - Related Parties

 

A.        Compensation and benefits to key management personnel

 

 

Executive officers also participate in the Company's share option programs. For further information see Note 13 regarding share-based payments.

 

Compensation and benefits to key management personnel (including directors) that are employed by the Company:

 

 

Year ended 31 December

 

 

 

2016

2015

 

 

 

USD thousands

USD thousands

 

Share-based payments

 

 

 30 

 - 

Other compensation

 

 

 

 

 and benefits (*)

 

 

 2,562 

 1,322 

 

 

 

 

 

 

 

 

 2,592 

 1,322 

 

(*)   Including management fees that were paid directly to key management personnel.

 

B.        Transactions with related parties

 

Details of transactions with related and interested parties are presented below (all transactions are at market terms, unless otherwise indicated):

 

 

Year ended 31 December

 

 

2016

2015

 

 

Value of transactions

 

 

USD thousands

 

Related party

Nature of transaction

 

 

Webisaba Ltd.  

Sale of media from the Company.

17 

 51 

 

Purchase of media by the Company

(147)

(48)

 

C.        See also Notes 7 and 8.

 

 

Note 16 - Subsidiaries

 

A.        Details in respect of subsidiaries

 

Presented hereunder is a list of the Group's subsidiaries:

 

 

 

Principal

The Group's ownership interest in

 

 

location of the

the subsidiary for the year ended

 

 

company's

December 31

Name of company

 

activity

2016

2015

 

Taptica LTD

100%

100%

Taptica INC

100%

100%

Taptica Social LTD

100%

100%

SocialClicks INC

100%

100%

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 16 - Subsidiaries (cont'd)

 

B.        Acquisition of subsidiaries

 

Business combination from a prior period - Taptica Social Ltd.

 

On 7 September 2015 (hereinafter - the Acquisition Date) the Company acquired 100% of the outstanding share capital of Taptica Social. Taptica Social is a leading mobile user acquisition platform for brands and applications' developers to engage valuable mobile users through social media networks.

 

Upon the closing of the transaction, the Company paid USD 9,288 thousand in cash and USD 2 million, satisfied by the allotment of 2,088,337 newly issued ordinary shares of the Company, calculated based on 61 pence per share, following the receipt by Taptica Social of a tax ruling from the Israeli tax authority (see Note 18). Those shares were held in escrow, in the name of ESOP Management & Trust Services Ltd., the escrow agent, for 30 months. In addition, the consideration included two contingent deferred payments - payable at 12 months and 24 months after the closing of the transaction - each consist of up to USD 1 million in cash and up to USD 1.5 million satisfied by the allotment of 3,132,504 New Ordinary Shares calculated based on 61 pence per share, that were payable subject to compliance with certain performance criteria. The Company had an option through 30 June 2016 to substitute the 2,088,337 ordinary shares held in escrow with a USD 2 million cash payment, and to substitute the ordinary shares included in the contingent deferred payments with cash.

 

During 2016, the Company has exercised the option and in total the Company has paid in 2016 an amount of USD 7 million and in doing so has settled its obligations with respect to the acquisition of Taptica Social, except for the cash deferred payment in the amount of USD 200 thousand related to the estimated fair value of the usable tax loss.

 

 

The aggregate cash flow derived for the Group as a result of the acquisition in 2015:

 

 

 

 

 

USD thousands

 

Cash and cash equivalents paid

 

 

 

9,288

Cash and cash equivalents of the subsidiaries

 

 

 

(1,189)

 

 

 

 

 

 

 

 

 

 8,099 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 16 - Subsidiaries (cont'd)

 

B.        Acquisition of subsidiaries (cont'd)

 

Business combination from a prior period - Taptica Social Ltd. (cont'd)

 

Adjustment of provisional amounts presented in 31 December 2015 financial statement:

 

The financial statements of the Company for December 31, 2015 included provisional amounts in respect of the subsidiary's intangible assets. During 2016 upon the completion of the independent valuation of the business combination the amounts reported were adjusted as follows:

 

December 31, 2015

 

 

 

As presented

 

 

 

 

in Note 16 of the

 

 

 

 

annual financial

 

As adjusted

 

 

statements

Effect of

in these

 

 

as of

retrospective

financial

 

 

31 December 2015

adjustment

statements

 

 

USD thousands

USD thousands

USD thousands

 

Intangible assets

 

 6,918 

 944 

 7,862 

Deferred tax liabilities

 

(1,276)

(304)

(1,580)

Goodwill

 

 9,328 

(447)

 8,881 

Contingent consideration commitment

 

(2,302)

(193)

(2,495)

 

The effect of the adjustment on the Statement of Comprehensive Income for the year ended 31 December 2015 is immaterial.

 

Consideration transferred:

 

The following summarizes the major classes of consideration transferred, and the recognized amounts of assets acquired and liabilities adjusted upon completion of the independent valuation:

 

 

 

 

2015

 

 

 

USD thousand

 

Cash

 

 

 9,288 

Equity instruments (2,088,337 ordinary shares) (i)

 

 

 1,656 

Replacement share-based awards (ii)

 

 

 48 

Contingent consideration (iii)

 

 

 4,602 

 

 

 

 

 

 

 

 15,594 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 16 - Subsidiaries (cont'd)

 

B.        Acquisition of subsidiaries (cont'd)

 

Business combination from a prior period - Taptica Social Ltd. (cont'd)

 

(i)         Equity instruments

 

The fair value of the equity instrument was based on the quoted price of the Company's share on the Acquisition Date, deducted by the value of the embedded share repurchase option, measured based on Black & Scholes model (exercise price and share value - $0.96, risk-free interest rate - 0.48%, volatility - 40%).

 

(ii)        Replacement of share-based payment awards

 

The terms of the acquisition agreement required the Group to exchange share-based payment awards held by employees of the acquiree (hereinafter - the acquiree's awards) for share-based payment awards of the Group (hereinafter - the replacement awards). Details of the acquiree's awards and replacement awards are as follows:

 

·     The acquiree's awards were granted before the acquisition of Taptica Social.

·     The vesting date of the replacement awards is the same as the acquiree's awards.

 

 

Acquiree's award

Replacement awards

 

 

 

 

Market-based value at

USD 176 thousand

USD 176 thousand

 acquisition date

 

 

 

In 2015, the Group recognized USD 48 thousand as part of the cost of the business combination on the basis of the portion of the replacement awards that can be attributed to services provided before the business combination. An amount of USD 128 thousand will be recognized as post-acquisition compensation cost.

 

(iii)       Contingent consideration

 

The contingent consideration, as discussed above with respect to 3,132,504 shares, had been recorded as a financial liability at fair value. The fair value had then been measured based on the price per share, the probability of achievement of the performance criteria and the value of the option to settle in cash. Accordingly as of 31 December 2015, the Group had included USD 4,602 thousand (adjusted amount upon completion of the valuation) thousand as contingent consideration as part of the purchase price. Such contingent consideration is subsequently measured at fair value with result in differences recognized in profit or loss. See also Note 14E.

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 16 - Subsidiaries (cont'd)

 

B.        Acquisition of subsidiaries (cont'd)

 

Business combination from a prior period - Taptica Social Ltd. (cont'd)

 

Identifiable assets acquired and liabilities:

 

 

 

 

 

 

USD thousands

 

Cash and cash equivalents

 

 

 

 1,189 

Trade receivables

 

 

 

 1,231 

Other receivables

 

 

 

 341 

Property, plant and equipment

 

 

 

 81 

Intangible assets(1)

 

 

 

 8,356 

Other payables

 

 

 

(772)

Trade payables

 

 

 

(2,311)

Deferred tax liabilities, net

 

 

 

(1,402)

Net identifiable assets

 

 

 

 6,713 

 

(1)        Comprised from trade name, technology and customer relationships.

 

Goodwill:

 

Goodwill was recognized as a result of the acquisition as follows:

 

 

 

 

 

USD thousands

 

Consideration transferred

 

 15,594 

Less fair value of identifiable net assets

 

(6,713)

 

 

 

Goodwill

 

 8,881 

 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 16 - Subsidiaries (cont'd)

 

B.        Acquisition of subsidiaries (cont'd)

 

Business combination from a prior period - Taptica Social Ltd. (cont'd)

 

Measurement of fair values

 

Presented hereunder is information regarding the techniques the Group used to measure the fair value of the assets and liabilities recognized as a result of the business combination:

 

a.         Trade name and Technology

 

The fair value of technology and trade name is based on the relief from royalty rate method, which considers both the market approach (compare to similar businesses or intangible assets that have been sold) and the income approach (convert anticipated benefits into a present single amount).

 

b.         Customer Relationships

 

The fair value of customer relationships is based on the income approach specifically the multi-period excess earnings method.

 

 

 

 

 

Notes to the Consolidated Financial Statements as at 31 December 2016 continued

 

 

Note 17 - Operating Segments

 

The Group has a single reportable segment as a provider of marketing services.

 

A.        Revenue from media channels

 

Total revenues from external customers divided on the basis of Company's media channels are as follows:

 

 

 

Year ended 31 December

 

 

2016

2015

 

 

USD thousands

USD thousands

 

Mobile

 

 107,889 

 46,448 

Non-mobile

 

 17,972 

 29,381 

 

 

 125,861 

 75,829 

 

B.        Entity level disclosures

 

Information on geographical segments

 

The Company is domiciled in Israel and it produces its income primarily in USA, Israel, China, Germany and UK.

 

In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers.

 

 

 

Year ended 31 December

 

 

2016

2015

 

 

USD thousands

USD thousands

 

External revenues

 

 

 

 

 

 

 

America

 

 56,902 

 45,137 

Europe

 

 35,697 

 13,444 

Asia

 

 22,784 

 6,664 

Israel

 

 5,868 

 5,211 

Others

 

 4,610 

 5,373 

Consolidated

 

 125,861 

 75,829 

 

 

Note 18 - Subsequent events

 

 

Subsequent to the balance sheet date, the board has resolved to declare a dividend of $0.0432 per share, with a payment date of 20 June 2017.


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